SECTION 1. PURPOSE

Notice 2001-16, 2001-1 C.B. 730, identified the Intermediary
Transaction Tax Shelter as a listed transaction under § 1.6011-4(b)(2)
of the Income Tax Regulations. Since that notice was published, the
Internal Revenue Service (Service) has received disclosure statements
with respect to Notice 2001-16 transactions pursuant to § 1.6011-4
and other information pursuant to §§ 6111 and 6112
of the Internal Revenue Code and through promoter audits. After reviewing
the disclosure statements and other information, the Service and Treasury
Department have decided to identify the components of an Intermediary
Transaction Tax Shelter. A transaction that does not have all of
the components identified herein is not the same as or substantially
similar to the listed transaction described in Notice 2001-16. The
Service and Treasury Department also are identifying the persons who
are treated as participants in an Intermediary Transaction Tax Shelter
under § 1.6011-4(c)(3)(i)(A). This notice should not otherwise
be construed as limiting the scope or application of Notice 2001-16
and should not otherwise create any inference as to whether or not
a transaction was required to be disclosed or registered under § 6011
or § 6111 prior to January 17, 2008.

SECTION 2. BACKGROUND

An Intermediary Transaction Tax Shelter attempts to avoid the
corporate income tax from a sale of assets. Generally it involves
transactions in which shareholders of a corporation dispose of their
shares of stock of the corporation, one or more persons purchase the
corporation’s assets in one or more taxable transactions, and
all or a portion of the gain or tax that would otherwise result to
the corporation from a sale of the assets is avoided.

SECTION 3. DISCUSSION

.01 Components of an Intermediary Transaction Tax Shelter

An Intermediary Transaction Tax Shelter involves the use of
an intermediary (M) (which can be one or more persons) in facilitating
the transaction. However, the Service has received information and
comments from taxpayers suggesting that identifying the transaction
based on the role of an entity that appears to be an intermediary
may result in over-disclosure or under-disclosure of the transaction
depending on the circumstances of the transaction. To address these
concerns, this notice identifies the four necessary components in
an Intermediary Transaction Tax Shelter from the perspective of the
target corporation, its shareholders, and the purchasers of the target
corporation’s assets.

1. A corporation (T) directly or indirectly (e.g., through a pass-through entity or a member of a consolidated group
of which T is a member) owns assets the sale of which would result
in taxable gain and, as of the time of the stock disposition described
in component two, T (or the consolidated group of which T is a member)
has insufficient tax benefits to eliminate or offset such taxable
gain (or the tax) in whole or in part. The tax that would result
from such sale is hereinafter referred to as T’s Built-in Tax.
In determining whether T’s (or the consolidated group’s)
tax benefits are insufficient for purposes of the first sentence,
the following tax benefits shall be excluded: (i) any tax benefits
attributable to a listed transaction under § 1.6011-4(b)(2),
and (ii) any tax benefits attributable to built-in loss property acquired
within 12 months before the stock disposition described in component
two, to the extent such built-in losses exceed built-in gains in property
acquired in the same transaction(s). All references to T in this
notice include successors to T.

2. At least 50 percent of the T stock (by vote or value) is
disposed of by T’s shareholder(s) (X), other than in liquidation
of T, in one or more related transactions within a 12 month period.

3. Either within 12 months before, simultaneously, or within
12 months after the date on which X has disposed of at least 50 percent
of the T stock (by vote or value) (excluding any time T is protected
or hedged against price fluctuations), all or most of T’s assets
are disposed of (Sold T Assets) to one or more buyers (Y) in one or
more transactions in which gain is recognized with respect to the
Sold T Assets. Where a disposition of Sold T Assets is an intercompany
transaction between members of a consolidated group, the disposition
will not be a “transaction in which gain is recognized with
respect to the Sold T Assets” for purposes of the preceding
sentence until such gain must be taken into account under the rules
of § 1.1502-13.

4. All or most of T’s Built-in Tax described in component
one that would otherwise result from the disposition of the Sold T
Assets described in component three is purportedly offset or avoided
or not paid.

.02 Participation in the Listed Transaction

A transaction must have all four of the components identified
herein to be the same as or substantially similar to the listed transaction
identified in Notice 2001-16 as the Intermediary Transaction Tax Shelter.
In determining whether a person is a participant in a transaction
identified in Notice 2001-16, the general rule in § 1.6011-4(c)(3)(i)(A)
applies, except the following rules apply with respect to persons
in the position of X or Y as described below:

In no event will any X be treated as a participant under § 1.6011-4(c)(3)(i)(A)
if the only T stock X disposes of is traded on an established securities
market (within the meaning of § 1.453-3(d)(4)) and prior
to the disposition X (including related persons described in section
267(b) or 707(b)) did not hold five percent (or more) by vote or value
of any class of T stock disposed of by X.

In no event will any Y be treated as a participant under § 1.6011-4(c)(3)(i)(A)
if the only Sold T Assets acquired by Y are either (i) securities
(as defined in section 475(c)(2)) that are traded on an established
securities market (within the meaning of § 1.453-3(d)(4))
and represent a less-than-five-percent interest in that class of security,
or (ii) assets that are not securities and do not include a trade
or business as described in § 1.1060-1(b)(2).

Independent of their classification as “listed transactions,”
transactions that are the same as, or substantially similar to, the
transaction described in Notice 2001-16 may already be subject to
the requirements of § 6011, § 6111, or § 6112,
or the regulations thereunder.

Persons involved with these transactions are alerted to certain
responsibilities that may arise from their involvement with these
transactions. Persons required to disclose these transactions under
§ 1.6011-4 and who fail to do so may be subject to the penalty
under § 6707A. Persons required to disclose or register
these transactions under § 6111 who have failed to do so
may be subject to the penalty under § 6707(a). Persons
required to maintain lists of investors under § 6112 who
fail to provide such lists when requested by the Service may be subject
to the penalty under § 6708(a). A person that is a tax-exempt
entity within the meaning of § 4965(c), or an entity manager
within the meaning of § 4965(d), may be subject to excise
tax, disclosure, filing or payment obligations under § 4965,
§ 6033(a)(2), § 6011, and § 6071. Some
taxable entities may be subject to disclosure obligations under § 6011(g)
that apply to “prohibited tax shelter transactions” as
defined by § 4965(e) (including listed transactions).

In addition, the Service may impose other penalties on persons
involved in this transaction or substantially similar transactions
(including an accuracy-related penalty under § 6662 or 6662A)
and, as applicable, on persons who participate in the promotion or
reporting of this transaction or substantially similar transactions
(including the return preparer penalty under § 6694, the
promoter penalty under § 6700, and the aiding and abetting
penalty under § 6701).

Further, under § 6501(c)(10), the period of limitations
on assessment may be extended beyond the general three-year period
of limitations for persons required to disclose transactions under
§ 1.6011-4 who fail to do so. See Rev. Proc. 2005-26, 2005-1
C.B. 965.

The Service and the Treasury Department recognize that some
taxpayers may have filed tax returns taking the position that they
were entitled to the purported tax benefits of the types of transactions
described in Notice 2001-16. These taxpayers should consult with
a tax advisor to ensure that their transactions are disclosed properly
and to take appropriate corrective action.

SECTION 4. EFFECTIVE DATE

This notice is effective as of January 17, 2008. This notice
is applicable to returns and statements due under § 6011
or § 6111 after January 17, 2008.

SECTION 5. EFFECT ON OTHER DOCUMENTS

Notice 2001-16 is modified with respect to the types of persons
who may be treated as participants in an Intermediary Transaction
Tax Shelter under § 1.6011-4(c)(3)(i)(A).

DRAFTING INFORMATION

The principal author of this notice is T. Ian Russell of the
Office of Associate Chief Counsel (Corporate). For further information
regarding this notice, contact Mr. Russell at (202) 622-7550 (not
a toll-free call).